Fitch Places Cablevision's 'BB-' IDR on Rating Watch Negative

September 18, 2015 07:04 PM Eastern Daylight Time

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has placed the 'BB-' Issuer Default Rating (IDR) for
Cablevision Systems Corporation (CVC) and its wholly owned subsidiary
CSC Holdings, LLC (CSCH) on Rating Watch Negative. In addition, Fitch
has assigned recovery ratings and placed the specific issue ratings
assigned to CVC and CSCH on Rating Watch Negative. A full list of
ratings follows the end of this release.

The Negative Watch arises from the September 17, 2015 announcement by
Altice N.V. (Altice) that it would acquire CVC for $34.90 per share or
an enterprise value of $17.7 billion, including $8.4 billion of existing
debt. The transaction is expected to close in the first half of 2016
after all necessary regulatory approvals are obtained. Cablevision
shareholders have approved the transaction, and the transaction is not
subject to further shareholder approval.

CVC will become an unrestricted subsidiary of Altice and will maintain a
separate capital structure. Financing plans have been committed and will
consist of $6 billion of incremental debt to be issued at either CVC, or
CSCH or a combination of both, and $3.3 billion of equity. Approximately
70% of the equity financing will be committed by Altice. The remaining
30% will be syndicated to co-investors and is backstopped by Altice.
Altice also has commitments to refinance $2.1 billion of outstanding
term loans at CSCH and $480 million of outstanding term loans at
Newsday, LLC, a CSCH subsidiary.

This transaction will represent Altice's second acquisition of a U.S.
cable operator this year. On May 20, 2015, Altice announced its entry
into the U.S. market with the acquisition of Suddenlink Communications
(Suddenlink), the seventh largest U.S. cable operator with approximately
1.5 million subscribers in more than a dozen states, for $9.1 billion.
The purchase will be funded with $6.7 billion of new and existing
Suddenlink debt, a $500 million vendor loan note from BC Partners and
CPP Investment Board, and $1.2 billion of cash. The transaction is
valued at 7.6x pro forma EBITDA (assumes $215 million of synergies) and
is expected to close in the fourth quarter of 2015.

Fitch anticipates resolving the Negative Watch around the time of the
closing of the transaction. In reviewing the transaction, Fitch will
focus on the financing of the transaction, the issuing entities of the
incremental debt, and the viability of the potential synergies and their
expected timing, among other factors.

KEY RATING DRIVERS

--The acquisition of CVC and Suddenlink by Altice will create the fourth
largest MVPD operator in the U.S.

--Although Altice has demonstrated its ability to achieve synergy
targets at previous acquisitions, in Fitch's opinion, there is
significant execution risk given that: 1) Altice is a new entrant to the
U.S. market, 2) Altice has presented sizable synergies that may be
difficult to realize entirely, and 3) it will not have contiguous
operations that would benefit from scale efficiencies.

--Excluding synergies, pro forma leverage for the transaction will
increase to 8.5x from 5.2x at the end of second-quarter 2015.

Improving Credit Profile: Fitch believes that Cablevision Systems
Corporation's (CVC) credit profile, while weakly positioned within the
current rating, will continue to strengthen in step with anticipated
improvement of its operating profile. This is the result of its attempts
to offset rising programming and employee compensation costs with price
increases and operational efficiency initiatives aimed at accelerating
revenue growth and improving EBITDA margins.

Modest EBITDA Improvement: In addition to ongoing pricing initiatives
previously implemented, CVC's continuing operating cost initiatives
partially offset high single-digit programming cost inflation by driving
down other costs. These actions resulted in EBITDA margin expansion of
136 bps to 28.4% in 2014 from the previous year. However, Fitch does not
believe that the operating margin of CVC's core cable segment will
return to historical levels and CVC's EBITDA margins continue to lag
those of its peer group.

Leverage Reduction: CVC's financial strategy is centered on
opportunistically reducing debt and improving its credit profile. The
company utilized cash from asset sales and litigation settlements to
reduce outstanding debt and ended second-quarter 2015 with leverage of
5.2x, which is an improvement from 5.3x and 5.8x at year-end 2014 and
2013, respectively. Fitch expects initiatives to improve operational
efficiency and ongoing pricing actions will expand EBITDA margins
modestly during 2015. The operating initiatives and debt reduction
should strengthen credit protection metrics.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case include:

--A $10 billion equity valuation that funded with $3.3 billion of equity
from Altice and its co-investors, $6 billion of incremental debt, and
cash on hand;

--CVC revenue growth in the low-single digits, reflecting the maturity
and high penetration rate of the company's services.

RATING SENSITIVITIES

The rating could be affirmed at the current level if, in Fitch's view,
CVC will be able to reduce leverage below 5.5x within a 18-24 month
period and remain at that level on a sustainable basis. Specifically,
Fitch would want to see strengthening EBITDA margins and strong progress
on Altice's ability to realize expected synergies.

Negative ratings actions would likely coincide with:

--If the company does not present a credible deleveraging bring leverage
below 5.5x times within 18-24 months.

--EBITDA margins remain weak compared to peer group or as a result of
inability to realize synergies.

LIQUIDITY

Fitch considers CVC's liquidity position and overall financial
flexibility to be adequate given the current rating. The company's
liquidity position is supported by cash on hand totaling $797 million as
of June 30, 2015 and available borrowing capacity from CSCH's $1.5
billion revolver expiring April 2018. Fitch expects CVC's financial
flexibility will strengthen in line with its improving operating profile
and FCF generation.

CVC reduced its annual term loan amortization payments after issuing
$750 million of senior notes due 2024 to prepay a portion of its term
loan B in May 2014. CSCH repaid an additional $200 million under its
term loan B in April 2015. Scheduled maturities at June 30, 2015
(excluding collateralized monetization transactions) consist of $30
million during the remainder of 2015, $564 million during 2016 and $1
billion in 2017.

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